Gold plunges to 1-week low as US bond yields and dollar climb

Gold touched a one-week low on Thursday, as US Treasury yields rose and the dollar firmed after a bigger-than-expected rise in US consumer prices boosted bets for early interest rate hikes.

Spot gold was down 0.1% at $1,814.47 per ounce by 1108 GMT, after falling to its lowest since May 6 at $1,811.74 earlier in the session. US gold futures fell 0.5% to $1,814.40.

“The real yields continue to rise and there is speculation in the market that there would be a surprise tightening by the Federal Reserve,” said Xiao Fu, head of commodities markets strategy at Bank of China International. Benchmark US 10-year Treasury yields jumped to their highest in more than a month, while the dollar index rose 0.1% versus rivals. Data on Wednesday showing US consumer prices jumped the most in nearly 12 years in April, intensified concerns over rising inflation and possible interest rate hikes. High interest rates increase the opportunity cost of holding non-yielding bullion.

However, the Fed has pledged to keep interest rates low until the economy reaches full employment, and inflation hits 2% and is on track to “moderately” exceed that level for some time. Investor now await the US jobless claims report later in the day and retail sales data on Friday.

Elsewhere, palladium fell 1.8% to $2,805.95 per ounce, extending declines after top producer Nornickel said it resumed full operations at one of its two mines hit by flooding this year. Silver was down 0.8% at $26.81, while platinum dropped 0.6% to $1,202.81.

INDIA GOLD PRICES TO RISE: The price of gold is expected to rise above the Rs56,500-level (per 10 gm) over the next 12-15 months, according to a report by Motilal Oswal Financial Services.

“On the domestic front, the post-budget price correction is a good level to enter an immediate target towards Rs 50,000 and eventually hitting new highs of Rs56,500 and above over the next 12-15 months,” it said.

Gold’s volatility in 2021 until now has been no less than any ride in an amusement park, the report said, adding that after a good rally last year, the market witnessed some profit booking and consolidation at the lower levels amid the US Presidential election uncertainty, vaccine reports from various pharma companies and volatility in dollar and yields.

This led to some profit booking in ETFs and CFTC positions suggesting that speculators too gave up their positions, hence affecting the overall sentiment. Although, with all these uncertainties, the precious metal pack was backed by strong fundamentals which kept the hopes high for all bulls.

“While we talk about the pandemic and bullions fundamentals, it is hard to forget the supply and demand dynamics that have been changing due to the measures the government announced in these times. The year 2020 started with prices at peak as there was ample demand and not sufficient supply,” the report said.

Physical market was hit, as amid the pandemic, stores were shut and market participants could not go out and buy or recycle their gold. On other hand, with less gold recycling and mines taking a hit, the overall supply was in question.

Talking about demand and supply numbers in Q1, according to World gold Council, strengthening consumer demand mitigated the impact of ETF outflows as global economies continued to recover. And total supply fell 4 per cent in Q1 despite increased mine production.

In 2021, the pandemic struck again and a lot of economies announced stricter restrictions that led to safe-haven buying in the precious metal pack. Covid cases are still on the rise in India and the pandemic fears still hovers the market, but the situation is a bit different from last year.

A complete lockdown is not yet announced pan India. While there are a few restrictions, the demand supply dynamics are different from the previous year. Also, import duty cut was declared earlier this year in the Union Budget announced by the Centre, which also weighed on the prices and encouraged jewelers to import more.

The effect of the same can already be seen as the March import numbers were reported at 160T which is almost 470 per cent higher than the previous year. Strong fundamentals are helping gold gain momentum and are justifying our bullish stance maintained for more than a year, the Motilal Oswal report said.

Akshaya Tritiya, an annual spring-time festival of the Hindus and Jains, is approaching this week. gold’s demand increases more during such festivals and looking at the import numbers, the same is expected this time too.

There is definitely a concern of restrictions that are re-imposed in almost all parts of the country although the lockdown situation is better as compared to last time. Also, with physical gold there are many platforms like online gold (Me-gold), ETFs, and others, which the market participants can select from depending on their risk.